Find the Market Value of a Plain Vanilla Swap from the Perspective

question 50

Multiple Choice

Find the market value of a plain vanilla swap from the perspective of the fixed rate payer in which the upcoming payment is in 30 days,and there is one more payment 180 days after that.The fixed rate is 7 percent and the upcoming floating payment is at 6.5 percent.The notional principal is $15 million.Assume 360 days in a year.The prices of Eurodollar zero coupon bonds are 0.9934 (30 days) and 0.9528 (210 days) .

• A)the fixed payer pays $31,763.75
• B)the fixed payer pays $71,527.50
• C)the floating payer pays $49,500
• D)the floating payer pays $194,228
• E)none of the above

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Definitions:

Monthly Interest

Monthly interest is the amount of interest earned or paid on an investment or loan calculated and paid on a monthly basis.

Regular-interest

The standard or typical interest rate applied to savings or investment accounts, calculated over a set period.

Invested

The method of placing financial resources in expectation of yield or profit.

Compounded Semi-annually

This refers to the process of applying interest to an initial sum plus any previously earned interest, and this action occurs twice a year.